1. SAJJAD AHMAD, J.-The facts giving rise to this appeal, by special leave, are as follows :- The appellant, Robert Cotton Associates Limited, Khanewal, which is a registered firm, owns a ginning factory at Khanewal, and deals in cotton and cotton seeds. On the 6th of November 1963, a sum of Rs. 25,000 was advanced by it to Nawazish Ali Khan, now dead, father of respondents Noi. 2 and 3, for the supply of cotton to the firm. By way of security, Khan Karate Hussain Khan, respondent No. 1, father of the late Nawazish Ali Khan, executed a Kafalat Nama "whereby he pledged one square of land in village Khanewal Kohna for security of the advances made to his son". The account of Nawazish Ali Khan maintained by the firm, copy Exh. P. 3 on record, shows that since then there have been several credit and debit entries, the credit side representing the amounts that were realised on account of the sale of cotton and cotton seeds supplied to the firm by Nawazish Ali Khan from time to time. In June 1964, when the account was closed and the balance was struck, ft was found that a sum of Rs. 12,600.04 was due from Nawazish Ali Khan. By that time, Nawazish Ali Khan had died, leaving respondents Nos. 2 and 3 as his legal heirs but no estate in their hands. As the respondents had failed to pay this amount, the appellant-firm brought a suit against them on the 20th of April 1967, which was contested by the respondents on various grounds, including that of limitation. The trial Judge decreed the suit only against respondent No. 1, Khan Karam Hussain Khan, who had stood surety for Nawazish Ali Khan. The suit against respondents Nos. 2 and 3 (sons of Nawazish Ali Khan) was dismissed on the ground that they were not shown to have inherited any property from the deceased. Karam Hussain Khan went in appeal, which was accepted by the District Judge, Multan, on the 18th of December 1968, who held that the suit was barred by time, having been brought more than 3 years after the initial advance of Rs.
2. 25,000. He further held that Article 85 of the Limitation Act, on which reliance was placed by the plaintiff-firm was inapplicable, as the suit had not been brought on the strength of an open, current and mutual account, the initial advance of Rs. 25,000 being quite a separate transaction independent of any open, current and mutual account between the parties. He further held that Karam Hussain was not liable for any debt due from his deceased son, Nawazish Ali, on the basis of the Kafalat Mama. The plaintiff firm preferred a second appeal to the High Court, which was dismissed by a Division Bench, in which the application of Article 85 of the Limitation Act to the plaintiff's case was canvassed. The learned Judges of the Division Bench have professedly followed the view, which was adopted by Rankin, C. J. In the case of The Tea Financing Syndicate Ltd. v.
3. Chandra Kamat Bez Barua (AIR 1931 Cal. 359), in which it was held as follows:- "There can I think be no doubt that the requirement of reciprocal demands involves, as all the Indian cases have decided following Holoway, Actg., C. J., transactions on each side creating independent obligations on the other and not merely transactions which create obligations on one side, those on the other being merely complete or partial discharges of such obligations. It is further clear that goods as well as money may be sent by way of payment. We have, there: fore to see whether under the deed the tea was sent merely by way of discharge of the defendant's debt or whether it was sent in the course of dealings designed to create a credit to the defendant as the owner of the tea which credit when brought into the account, would operate by way of set-off to reduce the defendant's liability."
4. According to the learned Judges of the Division Bench, as there was no transaction in the present case on each side, creating independent obligations on the other, the supplies made by Nawazish Ali Khan were in the nature of adjustments of the loan account, and Article 85 of the Limitation Act was, therefore, inapplicable.
5. Article 85 in the 1st Schedule of the Limitation Act is as follows;--- "85. For the balance due Three years.The close of the year on a mutual, open andin which the last current account, whereitem admitted or there have been recip-proved is entered In rocal demands betweenthe account ; such the parties.Year to be computed as in the account."
6. This Article, which is quite general, applies to a mutual account between any two persons. An open account is one where there are current dealings between the parties, and the account is kept open because of some contemplated future dealings. It would be so if the account is continuous or current, uninter--rupted or unclosed by settlement or otherwise and consists of a series of transactions. The limitation does not run in case of such account against any item where the account continues to be open and current, but as soon as an account ceases to be open, it becomes an account stated and immediately payable. Even where a balance is found to have been struck, the account can still be treated as open and current where it does not appear to have been finally closed and advances and receipts are to be found thereafter. The judicial test with regard to mutual accounts has been laid down by stating that there must be mutual dealings between the parties in the sense that both come under a liability to each other. One has to look at each particular case and see if it is really a case of debtor and credit only or a case of mutual obligations, which will in the ordinary way result in enforceable liabilities on each side. An ordinary debtor and credit account in which defendant (the debtor) never had any demand against plaintiff (the creditor) to whom he was indebted, is not within Article 85. Similarly, where payments in money and goods were credited to defendant merely in reduction of his debt, Article 85 is not applicable, as such payments were not evidence of reciprocal demands but were merely in partial extinguishments of an existing indebtedness. A wider view was adopted by Mcleod, C. J., and Shah, J., in the case of Madhav Motiram v. Jairam Sakharam and others (AIR 1921 Bom: 451), wherein following the Privy Council's judgment in Alexander Wason v. Aga Mehedee Sherazee and others (1974 1 A 346), it was observed as follows :-- "The test for the application of Article 85 appears to be whether the dealings are mutual, that Is to say, entered in an account, consisting of mutual items of debit and credit and not whether they might give rise to independent obligations or reciprocal demands or whether the balance might shift from one side to the other. Article 85 contemplates mutual dealings and it was intended that if there was a continuous account of mutual dealings, then for the purpose of a suit that period of limitation should be computed from the close of the year in which the last item admitted or proved was entered in the account."
7. This was a case which is very much identical with the case in hand, where the plaintiff sued to recover on a khata, or account of dealings, which had continued between the parties from the 1st of March 1913. The plaintiff advanced money to the defendant to buy cotton, which was ginned and pressed by the plaintiff, the charges being debited to the defendant, and after that the cotton was sent to Bombay through the plaintiff and sold, the plaintiff being credited with the sale proceeds as against the advances made by him to the defendant. In the Privy Council's case referred to above, there was an agreement between a principal and his agent commencing with an admitted balance. The agreement contemplated the existence of an account current consisting of mutual items of debit and credit. The agreement contained a stipulation that on the adjustment of the accounts, the principal should be bound to pay such balance as might be found due from him. The account was kept accordingly as continuous account which contained several items which brought down the mutual dealings to March 1868. It was held that the suit was within time and not barred by section 8 of Act XIV, 1859, which, with a slight difference, was almost the same as the present Article 85 of the Limitation Act IX of 1908.
8. Having carefully weighed the judicial tests laid down for the determination of a mutual, open and current account, as envisaged In Article 85, we are prone to think that all that is necessary to be proved is that there should be an open current account between two persons consisting of mutual items of debit and credit in the course of dealings between them, the credits to be made as such and not in discharge of the one-sided debt. The credit and debit transactions need not necessarily give rise to independent obligations, nor need the balance shift from one side to the other at any stage of the dealings. So long as there is a possibility of the shifting of the balances from one side to the other, mutuality of transactions is maintained. There need not be a mutuality of balances in the sense that balances should also shift from one side to the other from time to time. In the present case, there is no doubt that an open and current mutual account has gone on between the parties. The last item credited to the defendant-respondent in June 64, is a sum of Rs. 3,521.81, which is shown as the amount of defendant's commission. Before that, on March 3, 1-364, a sum of Rs. 2,250 is shown to C have been received in cash and credited to the defendant's account. There are credit and debit entries, starting right from November 6, 1963, when the initial advance was made till June 1964, when the balance was struck in the account at Rs. 12,600.04 only as due from Nawazish Ali Khan, without any acknowledg--ment by the latter as he had admittedly expired before that on the 13th of April 1964. The credit entries were not made simply in discharge of the debt and on that basis Article 85 is attracted even on the dictum of Rankin, C. J., in the case of The Tea Financing Syndicate v. Chandra Kamal Bez Barua, referred to above.
9. The learned counsel for the respondent urged that there was no open and current account left between the parties after the demise of Nawazish Ali Khan and that in any case for the application of Article 85, the account must subsist till the institution of the suit. There is no warrant for this contention, as according to the plain terms of Article 85, the period for purposes of the suit is the close of the year in which the last item admitted or proved was entered in the account, which in this case is admittedly the year 1964, from which the appellant's suit was filed within time before the expiry of three years.
10. The learned Judges of the Division Bench have also observed that the second appeal before them was improperly constituted as the heirs of Nawazish Ali were not impleaded as parties thereto. We find from the record of the appeal that the heirs of Nawazish Ali were made parties to the appeal.
11. In our view, the suit of the appellant-firm was within time and was wrongly dismissed as time- barred by the District Judge and the High Court. The result is that we accept this appeal and set aside the orders of the learned District Judge and of the High Court on the issue of limitation. The case will now go back to the High Court for decision of the appellant's second appeal on merits, as to whether or not Karam Hussain is liable for the sum in dispute. Costs to follow the event.